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Are Disadvantaged Bidders Doomed in Ascending Auctions?

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Author Info
Marco Pagnozzi () (University of Napoli "Federico II" and CSEF)

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Abstract

A bidder is said to be advantaged if she has a higher expected valuation of the auction prize than her competitor. When the prize has a common-value component, a bidder competing in an ascending auction against an advantaged competitor bids especially cautiously and, hence, the advantaged bidder wins most of the time. However, contrary to what is often argued, a disadvantaged bidder still wins with positive probability, even if his competitor.s advantage is very large and even if the disadvantaged bidder has the lowest actual valuation ex-post. Therefore, the disadvantaged bidder has an incentive to participate in the auction, and the presence of a bidder with a small advantage does not have a dramatic e¤ect on the seller.s revenue.

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Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 169.

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Date of creation: 01 Nov 2006
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Publication status: Forthcoming in Journal of Industrial Economics
Handle: RePEc:sef:csefwp:169

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Related research
Keywords: common-value auctions; asymmetric bidders;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

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References listed on IDEAS
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  1. Klemperer, Paul, 2002. "How (Not) to Run Auctions: The European 3G Telecom Auctions," CEPR Discussion Papers 3215, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Papers 2004-W09, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
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  3. Levin, Dan & Kagel, John H., 2005. "Almost common values auctions revisited," European Economic Review, Elsevier, vol. 49(5), pages 1125-1136, July. [Downloadable!] (restricted)
  4. Olivier Compte & Philippe Jehiel, 2002. "On the Value of Competition in Procurement Auctions," Econometrica, Econometric Society, vol. 70(1), pages 343-355, January. [Downloadable!] (restricted)
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  5. Marco Pagnozzi, 2004. "Bidding to Lose? Auctions with Resale," CSEF Working Papers 116, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  6. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Blackwell Publishing, vol. 67(3), pages 413-38, July.
  7. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 427-454, June. [Downloadable!] (restricted)
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  8. Christopher Avery & John H. Kagel, 1997. "Second-Price Auctions with Asymmetric Payoffs: An Experimental Investigation," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 6(3), pages 573-603, 09. [Downloadable!] (restricted)
  9. de Frutos, Maria-Angeles & Pechlivanos, Lambros, 2006. "Second-price common-value auctions under multidimensional uncertainty," Games and Economic Behavior, Elsevier, vol. 55(1), pages 43-71, April. [Downloadable!] (restricted)
  10. Jacob K. Goeree & Theo Offerman, 2003. "Competitive Bidding in Auctions with Private and Common Values," Economic Journal, Royal Economic Society, vol. 113(489), pages 598-613, 07. [Downloadable!] (restricted)
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  11. Jeremy Bulow & Paul Klemperer, 2002. "Prices and the Winner's Curse," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 1-21, Spring.
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  12. Bikhchandani, Sushil, 1988. "Reputation in repeated second-price auctions," Journal of Economic Theory, Elsevier, vol. 46(1), pages 97-119, October. [Downloadable!] (restricted)
  13. Klemperer, Paul, 1998. "Auctions with almost common values: The 'Wallet Game' and its applications," European Economic Review, Elsevier, vol. 42(3-5), pages 757-769, May. [Downloadable!] (restricted)
  14. Estelle Cantillon, 2000. "The Effect of Bidders' Asymmetries on Expected Revenue in Auctions," Cowles Foundation Discussion Papers 1279, Cowles Foundation, Yale University. [Downloadable!]
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  15. Marco Pagnozzi, 2003. "Sorry Winners," CSEF Working Papers 108, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  16. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
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